Microsoft stock is fairly valued with strong financials and growth potential from key products
From Morningstar: 2024-07-19 07:06:00
In the third quarter, Azure grew 31% year over year, exceeding guidance of 28%. Artificial intelligence contributed 7 percentage points to that growth. Microsoft plans to heavily invest, estimated to be $15 billion-$20 billion, in capital expenditures. The company also anticipates stepping up investments next year.
Microsoft is making progress on integrating Activision Blizzard and is considering raising prices for Game Pass. Commercial bookings and remaining performance obligation growth were strong.
Microsoft’s financial strength is robust, with a net cash position of $64 billion. Revenue growth is poised to come from Azure, Office 365, Dynamics 365, LinkedIn, and AI adoption. The company’s moat is wide due to switching costs, network effects, and cost advantages.
With a fair value estimate of $435 per share, Microsoft’s stock is fairly valued. The company enjoys an excellent financial position, driven by growing revenue, high margins, and strong balance sheet. Risks include shifting to cloud-based products faster than declining on-premises ones.
Microsoft bulls believe in the bright future of Azure, Microsoft 365, and the company’s monopoly-like positions in key areas. Bears note slowing subscription shift momentum in mature products like Office. Microsoft lacks a strong mobile presence and isn’t the top player in key growth sources like Azure.
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